The presence of competitively priced imported
footwear and its widespread presence on the shelves of the local stores
is costing the government millions in revenue loss, a situation made
worse by the massive tax evasion by the local industry, the bulk of
which is dependent on the informal sector.

Talking to PAGE, the Managing Director of Bata
Pakistan Ltd., J. D. Hearns, expressed concerns that though his company
enjoys just 11 per cent share of the footwear market in the country it
contributes an disproportionately high 72 per cent share of entire taxes
paid by the local footwear industry collectively.

Mr. Hearns, whom the PAGE had an opportunity
to talk at the opening ceremony of Bata's new outlet at Bahudurabad,
also said that the growing presence of low-priced imported shoes,
finding its way into the country through legal but under-invoiced
imports as well as finding its way illegally from many countries;
particularly China, Taiwan and Iran, are adversely affecting local
footwear industry of which Bata is the biggest and the most prominent
player.

Bata, the market leader and the biggest shoe maker in
the formal sector, is however, seems undeterred by the flow of
under-invoiced and downright smuggled counterparts and has plans to
expand its operations by remaining adamant not to compromise on quality.
It will be opening up a new store at Tariq Road on the 20th of this
month in Karachi and a 'very big store' at Liberty Market, Lahore on the
13th. It will also be opening a store in Dubai shortly.

For the year ended December 31, 2002, Bata's sales
stood at Rs 2.2 billion including a gross export turnover of Rs 72.40
million. After paying the sales tax, discounts and commissions, the net
sales totaled Rs 1.9 billion depicting a decline of 5 per cent over net
sales of Rs 2.06 the previous year. The company contributed Rs 325.6
million to the national exchequers including sales tax of Rs 239.8
million, corporate income tax, customs duty and other taxes. It produced
a total of 13.7 million pairs of footwear — 4.54 million leather,
5.125 million thongs, 2.219 million plastic and 1.842 million rubber and
canvas — in 2002 which were 2 million less than 15.7 million pairs
produced in the previous year. The company also imported 300,000 pairs
of fashionable footwear from countries in the Far East to compliment its
domestic collection.

The statistics of the market leader are provided to
highlight the contribution made by Bata to the national exchequers in a
country where the bulk of the share is enjoyed by the informal sector
which fails to fulfil its tax liabilities despite being the greatest
beneficiary. According to sources Service, another company in the formal
footwear, enjoy about 5 per cent of the entire share of footwear market.
The rest of the footwear market is dominated by the informal sector,
compromising some 4,000 manufacturing units of all sizes, which pay
minimal or no taxes at all.

Abdul Jalil, who has been a Bata distributor for last
70 years and who has inherited it from his father, blamed the low 20 per
cent import duty the primary reason for presence of imported shoes in
the local markets. "Manufacturers in the formal sector, which
almost entirely contributes a lion's share in duties and taxes, are
losing market not only to low-priced footwear imports made possible by
liberal imports but also to informal taxes which contributes little
taxes to the exchequers."

Putting the total value of footwear market in
Pakistan at around Rs 20 billion, Abdul Jalil, who is the proprietor of
Rasheed Shoe Company, said that while the imports of footwear is
liberalised the local traders associated with the business, like
himself, are find it increasingly hard to compete with the cheap
imports. "The distributors have to pay the sales tax in advance and
I myself have already paid Rs 7-8 million on the stocks which I have yet
to sell.

"It is getting increasingly difficult for the
footwear manufacturers in the organised sector to compete with the
imports after contributing so heavy a taxes, and also subjected to heavy
taxation at all stages from imports of raw materials to advance payment
of sales tax by the distributors. Taxes make up as much as thirty-five
per cent of the retail price of any locally manufactured footwear. I
myself had paid Rs 7-8 million in sales tax on stocks which will take
many months to sell to recover it."

China has not only become the major competitor in the
local market as it footwear flows into the country fueled by low import
duty and the massive under-invoiced and mis-declared shipments. It has
also emerged as the main competitor of Pakistani footwear in the export
markets. The situation would have serious repercussions on an already
unstable base of footwear exports which has failed to develop despite
immense value-addition that it offers to the leather footwear.

Despite the availability of quality tanned leather
there have been hardly any serious attempts to increase the share of the
value-added leather footwear in the overall leather and related exports.
Leather footwear contributes negligibly to the overall leather-related
exports trailing far behind exports of tanned leather, used by the
importers to primarily used in the manufacture of high-priced
value-added footwear, as well as leather garments. The decreasing share
of local market by the footwear manufacturers in the formal sector would
make the matters even more worse.